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Creating Regional Technology Hubs with the Endless Frontier Act

The Senate recently passed S. 1260, the United States Innovation and Competition Act of 2021 (USICA), on a bipartisan 68-32 vote. Sponsored by Sens. Schumer (D-NY) and Young (R-Ind), the legislation contains $250 billion in new spending focused on a wide variety of topics, including scientific research, microprocessor manufacturing, artificial intelligence, and space exploration. However, at the heart of the USICA is the $150 billion Endless Frontier Act (EFA). The bill failed to move in the 116th Congress. The companion bill, sponsored by Rep. Ro Khanna, has been in committee since April 2021.

The Endless Frontier Act is a thematically focused piece of legislation, touching National Science Foundation (NSF) research, manufacturing, supply chain resiliency, and technology. At the core of the EFA is a plan to create and fund a new directorate within the NSF, the Directorate of Technology and Innovation. The NSF is one of the premier STEM research funding sources in the United States, with a 2020 budget of $8.2 billion. The bill funds the new directorate with $5.8 billion per year over the next five years or approximately 70% of total previous NSF funding. The legislation would also designate $52 billion over the next five years for existing NSF activities, or $10.4 billion per year. A substantial expansion in STEM research and manufacturing funding could be transformative for the American technology and innovation sector. In addition to increased NSF funding, the EFA would identify, designate, and provide $10 billion in funding to create several regional innovation hubs across the country.

Legislative details are unclear regarding funding for regional technology hubs. Nevertheless, information can be extrapolated from several of the sources that the legislation can be traced.

A 2019 joint Brookings Institute/ITIF report, ‘The Case for Growth Centers: How to Spread Tech Innovation Across America’ and a book by MIT professors Jonathan Gruber and Simon Johnson, ’Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream’ discuss the idea of utilizing federal funding to supercharge the American innovation industry. Both addressed several broad-based issues associated with concentration among the innovation firms in Silicon Valley, Boston, the NC Research Triangle, and Seattle, such as high housing costs, gridlock, and an agglomeration of technology jobs. Importantly, each devised plans to develop the innovation industry throughout the rest of the country.

The EFA builds off their work with a goal of promoting innovation throughout the country. The bill would authorize the Department of Commerce to use tax and regulatory incentives, public-private partnerships, workforce development, and other methods to establish and grow the hubs. However, the most significant issue that arises from federally funded regional innovation hubs is how to ultimately select the winning locations from across the country.

The methodology utilized in the Brookings/ITIF report places substantial value on population, innovation capacity, the skill level of the population, and distance from an existing innovation hub. Drs. Gruber and Johnson measure the initial three, in addition to several other socioeconomic metrics, including home prices and crime levels. Possibly the most crucial methodological calculus the Brookings/ITIF team utilized was eliminating any metro area within 100 miles of an existing innovation hub. Newark, NJ would be eliminated as an option due to its proximity to New York City, as would Worcester, MA, due to Boston. This mandate would place a great deal of focus on geographic disbursement, which aligns with the language in the EFA. The bill is specific to ensure “geographic diversity,” “differing populations,” and the representation of “small and rural communities.”

The EFA in its current form does not describe a firm methodology to identify potential locations, assigning that duty to the Secretary of Commerce. Similar criteria may be used to identify and narrow down potential locations that were utilized in both the Brookings/ITIF report and Jump-Starting America. It is also possible that the Department of Commerce does not issue eliminating criteria to exclude hubs, allowing all locations that wish to be in the running for the EFA funding to pitch themselves.

Similar to identifying potential locations, there is nothing in the legislation that would indicate how the eventual winners would be selected. The only language in the bill specific to determining winning locations is a mandate that the Commerce Secretary utilizes a “competitive process.” The most analogous process to potentially understanding how location identification and selection would work is to study the Amazon HQ2 process. It is important to note, the lessons to learn are those surrounding the selection process, not what locations were ultimately selected. In the Amazon HQ2 process, 238 cities, regions, and municipalities pitched why they should be the home of Amazon’s second headquarters. The purported benefits of attracting the new Amazon headquarters included 50,000 high-paying jobs and $5 billion in local investment. This list was whittled down to 20 finalists that primarily resided on the east coast.

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With the focus on creating geographically disparate innovation hubs and the legislative emphasis on small and rural communities, the locations ultimately selected for EFA funding will not likely match those selected in HQ2. Additionally, the number of locations chosen would be drastically different between HQ2 and EFA. While HQ2 ultimately chose two locations, New York City and Arlington, VA, the current Senate version of the EFA aims to select 18 locations for funding. Drs. Gruber and Johnson outlined 102 possible growth centers in their book, demonstrating no shortage of locations in the United States that could realistically vie for these funds.

There is still substantial time and legislative wrangling remaining as the Endless Frontier Act advances through Congress. If the Senate version of the EFA were signed into law or a similarly structured bill, it would have the opportunity to remake the technology and innovation industry in America. The entire country stands between innovation hubs on the east and west coasts. The regional technology hub program of the EFA could change that, potentially making the next great American innovation hub Madison, WI, Des Moines, IA, or Lexington, KY. These are all locations that scored within the top-18 of either the Brookings/ITIF report or Drs Gruber’s and Johnson’s book. All locations that could be the beneficiary of substantial amounts of federal funding if the EFA becomes law.

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